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The Financial Impact of the IDB’s Liquidity Program for Growth Sustainability

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  • Ricardo N. Bebczuk

Abstract

This paper assesses the impact of the Liquidity Program for Growth Sustainability (LPGS) on Latin America and the Caribbean, instrumented by the IDB to confront the regional spillovers of the subprime crisis. This emergency liquidity line was set up to boost productive loans of commercial banks, channeled through a second-tier scheme. The empirical strategy revolves around GARCH models to test whether the public announcement of negotiations and of loan approval have had any impact on high frequency macroeconomic data, such as the country risk premium and the interbank interest rate. Our evidence reveals a positive and significant effect on financial stability attributable to LPGS in Jamaica, El Salvador, Costa Rica, Dominican Republic and Panama. We additionally discuss the rationale of key LPGS’ design features and the observed outcomes.

Suggested Citation

  • Ricardo N. Bebczuk, 2010. "The Financial Impact of the IDB’s Liquidity Program for Growth Sustainability," Department of Economics, Working Papers 079, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.
  • Handle: RePEc:lap:wpaper:079
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    File URL: http://www.depeco.econo.unlp.edu.ar/doctrab/doc79.pdf
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    1. Eduardo Fernández-Arias & Andrew Powell & Alessandro Rebucci, 2009. "The Multilateral Response to the Global Crisis: Rationale, Modalities, and Feasibility," IDB Publications (Working Papers) 1653, Inter-American Development Bank.
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